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Budget June 2010 - tax changes

Published: Thursday, 24 June 2010

The Chancellor announced increases in VAT, Capital Gains Tax and Insurance Premium Tax. The point at which most people start paying income tax will rise by £1,000 next year. You can find information about the different types of tax in the money, tax and benefits section.

VAT

The standard rate of VAT (Value Added Tax) will rise to 20 per cent from 4 January 2011. The current rate is 17.5 per cent.

There is no change to the items on which you don’t pay any VAT, such as food, children’s clothes and books. There is also no change to the 5 per cent reduced rate for items such as domestic fuel and power.

Income Tax and National Insurance

The personal allowance for people aged under 65 will increase by £1,000 in April 2011. This means the amount of income you can receive without having to pay tax on it will rise from £6,475 to £7,475 for the 2011-12 tax year.

This increase will benefit 23 million taxpayers, and remove hundreds of thousands of people from income tax altogether.

Current rates

Higher rate taxpayers

There will be some adjustments to ensure that the majority of higher rate taxpayers will pay the same total level of Income Tax and National Insurance as previously planned. The basic rate limit for tax will be reduced by £2,500, and the upper earnings and profits limits for National Insurance by £1,650, based on current estimates of the Retail Prices Index (RPI). Exact figures for the basic rate limit and higher rate threshold will be confirmed in the autumn.

National Insurance - employers

The threshold at which employers start to pay National Insurance will be raised in April 2011, making it cheaper for companies to employ people.

The government will also announce a tax scheme for new businesses, to help create jobs in targeted parts of Britain outside the South East.

Corporation Tax

Corporation Tax rates

Legislation will be introduced to cut the main rate of Corporation Tax to 27 per cent for the financial year starting 1 April 2011. There will be further cuts in the main rate in future years: 26 per cent in 2012-13, 25 per cent in 2013-14, 24 per cent in 2014-15.

The small profits rate of Corporation Tax for the financial year 2011-12 will be 20 per cent.

Corporation Tax reform

The Government will set out a more detailed programme for reform in the autumn.

Tackling tax avoidance

As set out in the Coalition Agreement, the government is committed to making every effort to tackle tax avoidance. The government will take a strategic approach to the risk of avoidance, to prevent increasing complexity and reduce the need for frequent legislative change.

The government is tackling long-standing avoidance risks in a way that makes it clear what result the legislation intends to achieve. The government will continue to shut down avoidance schemes as they emerge.